Will AOL smother Netscape's spark?

By
Tom Regan /
December 3, 1998

BOSTON

When I heard about the merger between Netscape and American Online (AOL) last week, I felt a bit the way I did after the New England Patriots beat the Miami Dolphins recently, but may have lost star quarterback Drew Bledsoe. I was happy my team - in this case Netscape - had done so well, but I was worried about the future.

AOL is to gain control of Netscape's Web browser, its portal site (where you go to launch your browser), and its electronic commerce software in a stock swap valued at between $4.2 billion and $4.35 billion. Meanwhile, AOL also signed a deal with Sun Microsystems to use more of Sun's equipment and software - particularly Java.

Mainstream media frequently announce that the Internet has come of age. But this merger between Netscape and AOL is significant. Imagine what the car industry would be like if Ford and GM merged. Or, a more appropriate analogy, first offered by former FCC chairman Reed Hundt, imagine what TV would be like if ABC and NBC joined forces.

What does it all mean? In a nutshell, it's going to reshape the online world. It allows AOL to reach about 61 percent of those who go online at work, and about 58 percent of the home audience. AOL has 14 million members and about 16 million people use the Netscape browser. That's a lot of eyeballs. Forrester Research says the deal would give AOL control of about 35 percent of the advertising money spent on the Web in 1998 (about $480 million).

The real sleeper in the deal, however, is the agreement with Sun Microsystems. AOL head honcho Steve Case has said he wants to free AOL users from the computer. The purchase of Netscape and the deal with Sun will hasten AOL's arrival on television sets, cell phones, and personal digital assistants like 3Com's Palm Pilot, thanks to the use of Java. Through another recent acquisition, AOL is already planning to market AOLTV, a product similar to Microsoft's popular WebTV.

Ironically, Microsoft is probably one of the biggest winners in this merger. It basically undermines much of the United States government's antitrust lawsuit against the company. Microsoft can now say, with some conviction, that its dominance of the online world is not assured, and further more, what it had been saying about the online industry correcting itself more quickly than more traditional industries was right all along. Even if Judge Thomas Penfield does find against Microsoft, penalties will be much less severe.

There's also a good chance that AOL will continue to use Microsoft's Internet Explorer on its commercial online product. After all, having that AOL symbol appear on all those PC machines loaded with Windows is not a deal to be ignored.

Who are the losers? Some online users and probably the Internet itself. Hard-core online users, longtime supporters of underdog Netscape, and never big fans of AOL, worry that AOL will smother Netscape's creative spark.

The footloose and fancy-free days of the Net are fast drawing to a close, and something intangible, but important, will be lost. Increasingly, the Web looks as if it will be dominated by AOL, Microsoft, and Yahoo. The idea of a virtual Big Three dominating the online world - in much the same way the automotive world was dominated by another Big Three, and the lack of innovation and competition and the near-entropy that resulted - is not a pleasing thought.